LPG price hike signal

OUR SPECIAL CORRESPONDENT

New Delhi, July 10: Domestic LPG prices could be increased in the coming months, impacting the kitchen budget, as the Modi government has cut the fuel subsidy bill by Rs 22,053 crore to Rs 63,427 crore for 2014-15.

However, it has marginally hiked the overall subsidy bill including food subsidy, fertiliser and petroleum subsidy by Rs 5,141 crore to Rs 260,657 crore in 2014-15 over the last fiscal.

“I also propose to overhaul the subsidy regime, including food and petroleum subsidies, and make it more targeted while providing full protection to the marginalised, poor and SC/STs. A new urea policy would also be formulated,” finance minister Arun Jaitley said in his maiden budget speech.

While the fuel subsidy continues to remain a battle between prevailing high international crude prices and the government’s effort to deregulate prices of some fuels such as diesel while wanting to raise the prices of others.

Analysts said as the under-recovery during the current fiscal is projected to be Rs 104,500 crore, subsidy provision, which includes rollover of the last fiscal, would burden the upstream companies if the subsidies are not cut down.

However, if the government decides to provide some relief to upstream companies, it would have to cut the subsidies or would have to be rolled over to fiscal 2015-16.

As the budget emphasises on reducing fuel subsidies, “the rationalisation of LPG subsidies would play a major role in cutting down fuel subsidies and a concrete plan of action for the same could be imperative,” K Ravichandran, senior vice-president, corporate sector ratings, ICRA said.

The under-recovery on LPG currently is a staggering Rs 449.17 per cylinder and at Rs 5 per month increase it will take seven years to wipe out the subsidy. Officials said the ministry is of the view that the monthly increases can be as high as Rs 10 if the political leadership takes a stand.

On kerosene, the subsidy currently is Rs 33.07 per litre and at Re 1 hike per month it would take more than two-and-a-half years to wipe out the subsidy. While the Rs 10 hike in LPG cylinder could cut the subsidy bill by Rs 7,000 crore per annum, the increase in kerosene prices would lower it by another Rs 850 crore each year.